Acquisitions

9 Months Ended

Sep. 30, 2021

Acquisitions

Acquisitions

5. Acquisitions

Amteck Holdco LLC Acquisition

On August 1, 2021, we acquired all of the issued and outstanding equity interests of Amteck Holdco LLC and each of its wholly owned subsidiaries (collectively “Amteck”). Amteck provides electrical contracting solutions and services, including design and build, pre-fabrication and installation for core electric and low-voltage systems, as well as services for planned maintenance, retrofit and emergency work. Amteck is headquartered in Kentucky and primarily serves the greater Southeastern United States, including Kentucky, Tennessee and the Carolinas. As a result of the acquisition, Amteck is a wholly owned subsidiary of the Company reported in our electrical services segment.

The following summarizes the acquisition date fair value of consideration transferred and the acquisition date fair value of the identifiable assets acquired and liabilities assumed, including an amount for goodwill (in thousands):

Consideration transferred:
Cash paid at closing	$	107,355
Working capital adjustment		6,892
Notes issued to former owners		10,000
Estimated fair value of contingent earn-out payments		12,900
	$	137,147

Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	13,554
Billed and unbilled accounts receivable		43,248
Other current assets		3,422
Property and equipment		3,891
Goodwill		54,554
Identifiable intangible assets		57,700
Operating lease right-of-use asset		8,997
Accounts payable		(14,489)
Billings in excess of costs and estimated earnings		(15,199)
Current maturities of long-term debt		(1,860)
Current operating lease liabilities		(1,115)
Accrued expenses and other current liabilities		(6,889)
Long-term debt		(785)
Long-term operating lease liabilities		(7,882)
	$	137,147

The allocation of the purchase price to the assets acquired and liabilities assumed is preliminary and, therefore, subject to change pending the completion of the final valuation of intangible assets and accrued liabilities. Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. All of the goodwill recognized as a result of the Amteck acquisition is tax deductible.

In estimating the fair value of the acquired intangible assets, we utilized the valuation methodology determined to be the most appropriate for the individual intangible asset. In order to estimate the fair value of the backlog and customer relationships, we utilized an excess earnings methodology, which consisted of the projected cash flows attributable to these assets discounted to present value using a risk-adjusted discount rate that represented the required rate of return. The trade name value was determined based on the relief-from-royalty method, which applies a royalty rate to the revenue stream attributable to this asset, and the resulting royalty payment is tax effected and discounted to present value. Some of the more significant estimates and assumptions inherent in determining the fair value of the identifiable intangible assets are associated with forecasting cash flows and profitability, which represent Level 3 inputs. The primary assumptions used were generally based upon the present value of anticipated cash flows discounted at rates ranging from 14.0%-18.5%. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.

The acquired intangible assets include the following (dollars in thousands):

	Valuation Method	Estimated Useful Life		Estimated Fair Value
Backlog	Excess earnings	1.5 years	$	7,800
Trade Name	Relief-from-royalty	23 years		12,600
Customer Relationships	Excess earnings	10 years		37,300
Total			$	57,700

The contingent earn-out obligation is associated with the achievement of four earnings milestones over a 53-month period, and the range of each average present value estimated milestone payment is $0.1 million to $11.4 million. We determined the initial fair value of the contingent earn-out obligation based on the Monte Carlo Simulation method, which represents a Level 3 measurement. Cash flows were discounted using discount rates ranging from 14.8%-15.2%, which we believe is appropriate and representative of a market participant assumption.  Subsequent to the acquisition date, the contingent earn-out obligation is remeasured at fair value each reporting period.  Changes in the estimated fair value of the contingent payments subsequent to the acquisition date are recognized immediately in earnings.

Other Acquisitions

In the first quarter of 2021, we completed an acquisition of a mechanical contractor in Utah with a total preliminary purchase price of $17.9 million, which is reported in our mechanical services segment. In the fourth quarter of 2020, we acquired all outstanding equity interest of Tennessee Electric Company, Inc. dba TEC Industrial Maintenance and Construction (“TEC”) for a total preliminary purchase price of $88.9 million, which included $73.0 million in cash, $7.0 million in notes payable to former owners, a $7.6 million contingent earn-out obligation and a $1.3 million working capital adjustment. As a result of the acquisition, TEC is a wholly owned subsidiary of the Company reported in our electrical services segment. We completed the acquisition of an electrical contractor in North Carolina in the first quarter of 2020 with a total purchase price of $41.6 million. This acquisition is reported in our electrical services segment.

On April 1, 2020, we consummated a merger through which TAS Energy Inc. (“TAS”) became a wholly owned subsidiary of the Company. The total purchase price was $169.5 million, of which $126.2 million was allocated to goodwill and identifiable intangible assets. The total purchase price included $105.9 million in cash, $40.5 million in working capital adjustment, $14.0 million in notes payable to former owners and a $9.1 million contingent earn-out obligation. TAS is headquartered in Houston, Texas, and is a leading engineering, design and construction provider of modular construction systems serving the technology, power and industrial sectors, and reports as a separate operating location in our mechanical services segment.

The results of operations of acquisitions are included in our consolidated financial statements from their respective acquisition dates. Our consolidated Balance Sheet includes preliminary allocations of the purchase price to the assets acquired and liabilities assumed for the applicable acquisitions pending the completion of the final valuation of intangible assets and accrued liabilities. The acquisitions completed in the current and prior year were not material, individually or in the aggregate. Additional contingent purchase price (“earn-out”) has been or will be paid if certain acquisitions achieve predetermined profitability targets. Such earn-outs, when they are not subject to the continued employment of the sellers, are estimated as of the purchase date and included as part of the consideration paid for the acquisition. If we have an earn-out under which continued employment is a condition to receipt of payment, then the earn-out is recorded as compensation expense over the period earned.